At the end of its first year of trading, a company has total trade receivables (debtors) of £20,000.The company accountant decides that there is an element of doubt about the ability of some ofthe trade receivables (debtors) to make payment. The accountant therefore sets up a provision fordoubtful debts in the amount of £3,000. During the company's second year of trading, tradereceivables (debtors) previously regarded as doubtful, in the amount of £500, succeed in makingpayment to the company. At the end of its second year of trading, the company has total tradereceivables (debtors) of £40,000, including the remaining trade receivables (debtors) identifiedas doubtful at the end of the first year. On reviewing trade receivables (debtors) at the end of thesecond year, the company accountant concludes that a total of £4,000 of receivables (debtors)should be classified as doubtful.What is the resultant figure for trade receivables (debtors), after deducting the provision fordoubtful debts, that will appear in the statement of financial position (balance sheet) of thecompany at the end of Year 1?A) 16,500B) 23,000C) 17,000D) 20,000What is the resultant figure for trade receivables (debtors), after deducting the provision fordoubtful debts, that will appear in the statement of financial position (balance sheet) of thecompany at the end of Year 2?A) 47,000B) 44,500C) 36,000D) 40,000

A provision for doubtful debts is an accounting entry made by a company to account for the…

What is the resultant figure for trade receivables (debtors), after deducting the provision for doubtful debts, that will appear in the statement of financial position (balance sheet) of the company at the end of Year 1? A) 16,500 B) 23,000 C) 17,000 D) 20,000 What is the resultant figure for trade receivables (debtors), after deducting the provision for doubtful debts, that will appear in the statement of financial position (balance sheet) of the company at the end of Year 2? A) 47,000 B) 44,500 C) 36,000 D) 40,000

What is the resultant figure for trade receivables (debtors), after deducting the provision for doubtful debts, that will appear in the statement of financial position (balance sheet) of the company at the end of Year 1? A) 16,500 B) 23,000 C) 17,000 D) 20,000 What is the resultant figure for trade receivables (debtors), after deducting the provision for doubtful debts, that will appear in the statement of financial position (balance sheet) of the company at the end of Year 2? A) 47,000 B) 44,500 C) 36,000 D) 40,000

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Bad Debts

At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.

Accounts Receivable

The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.

Question

At the end of its first year of trading, a company has total trade receivables (debtors) of £20,000.
The company accountant decides that there is an element of doubt about the ability of some of
the trade receivables (debtors) to make payment. The accountant therefore sets up a provision for
doubtful debts in the amount of £3,000. During the company's second year of trading, trade
receivables (debtors) previously regarded as doubtful, in the amount of £500, succeed in making
payment to the company. At the end of its second year of trading, the company has total trade
receivables (debtors) of £40,000, including the remaining trade receivables (debtors) identified
as doubtful at the end of the first year. On reviewing trade receivables (debtors) at the end of the
second year, the company accountant concludes that a total of £4,000 of receivables (debtors)
should be classified as doubtful.
What is the resultant figure for trade receivables (debtors), after deducting the provision for
doubtful debts, that will appear in the statement of financial position (balance sheet) of the
company at the end of Year 1?
A) 16,500
B) 23,000
C) 17,000
D) 20,000
What is the resultant figure for trade receivables (debtors), after deducting the provision for
doubtful debts, that will appear in the statement of financial position (balance sheet) of the
company at the end of Year 2?
A) 47,000
B) 44,500
C) 36,000
D) 40,000

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Step 1: Reason for creation of Provision for doubtful debts:

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Step 2: Net Trade receivable at the end of year 1:

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Step 3: Net Trade receivable at the end of year 2:

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